The Hindu Business Line : Small is beautiful for retailers in gloom

New Delhi, Dec. 15 Faced with the unexpectedly sharp slowdown in economic activity, retailers have begun to opt for smaller and niche formats rather than the large and hyper formats. This means shop sizes now will be between 800 and 5,000 sq feet, rather than huge flagship and experiential stores.

Companies say that the return on investments (RoI) is high in smaller formats as against a bigger retail area. Retailers such as Reliance Retail, Future Group’s Big Bazaar and Bharti’s Easy Day are moving ahead with smaller formats, especially in the fashion and furnishing segments apart from the food and grocery segments.

Industry analysts note that the return on investment in a large format is around Rs 11,000 to Rs 14,000 a year/sq.ft as against a smaller format where the RoI is about Rs 14,000-18,000 a year/sq.ft. “Large formats are highly mall-dependant. With smaller outlets, companies can gain scale faster besides getting premises in residential areas at a much lower cost,” they note.

Mixed land use

But much depends on whether mixed land use is allowed or not. According to Mr Rajneesh Mahajan, Director (Retail Services), Cushman and Wakefield, “Risk is much lower in a smaller format as compared to a big one. Wherever mixed land use is permitted, companies are going to areas where consumer concentration is high. In certain categories such as furnishing, food and grocery, fashion and apparel, retailers are abandoning flagship stores for neighbourhood stores.”

“The smaller formats can be anywhere from 800 sq feet to 5,000 sq feet. We will tap the niche customer segment,” Mr Manu Kapur, Chief Executive, Reliance Living Furnishing, said. The company recently opened another specialty store in the furnishing category. This is the fifteenth specialty store that Reliance has ventured into.

Similarly, Big Bazaar’s Best Deal store is the smaller format and a prototype that the company has been testing for a while now. “We are targeting about 100-odd stores, each covering an area of 2,000 sq feet, in the next two years. These stores will follow the convenio format and be present in neighbourhoods where mixed land use is permitted. It will primarily stock food and grocery,” a Future Group official said.